The budget is in remarkably good shape. Under our estimates of revenues and spending, the state’s constitutional reserve would reach $14.5 billion by the end of 2019-20. In addition, we project the Legislature will have nearly $15 billion in resources available to allocate in the 2019-20 budget process. The Legislature can use these funds to build more reserves or make new one-time and/or ongoing budget commitments.

The longer-term outlook for the state also is positive. Under our economic growth scenario, the state would have operating surpluses averaging around $4.5 billion per year (but declining over time). Under our recession scenario, the state would have enough reserves to cover a budget problem—provided the Legislature used all of the available resources in 2019-20 to build more reserves.

November 15, 2017 - The near-term budget outlook is positive. Under our current estimates, the state would have $19.3 billion in total reserves (including $7.5 billion in discretionary reserves) at the end of 2018-19, assuming the Legislature makes no additional budget commitments. The Legislature can use discretionary resources to build more budget reserves, increase spending, and/or reduce taxes. We also estimate the Legislature will have $5.3 billion in uncommitted school and community college (Proposition 98) funds to allocate in 2018-19. We provide more detail on our estimates of Proposition 98 funding in a separate report accompanying this outlook.
The state has made significant progress in preparing for the next recession. To assess the longer-term budget outlook, we present two illustrative economic scenarios for fiscal years after 2018-19. Under a moderate recession scenario, the state has enough reserves to cover its deficits until 2021-22, assuming the Legislature makes no additional budget commitments. Additional budget commitments in the near term could cause the state to exhaust its reserves earlier in the next recession

This year, our Fiscal Outlook includes this report and a collection of other fiscal outlook material on our fiscal outlook budget page.

November 16, 2016 - Under our current projections, assuming no changes in existing state and federal policies, we estimate the state will end the 2017-18 fiscal year with $11.5 billion in total reserves. This includes $8.7 billion in required reserves, which must be deposited into the rainy day fund, and $2.8 billion in discretionary reserves, which the Legislature can appropriate for any purpose. These reserve levels reflect the continued progress California has made in improving its budget situation. Our estimates include the effects of statewide ballot measures that were approved on November 8.
The condition of the state budget depends on many volatile and unpredictable factors. This uncertainty is present in the near term and becomes greater in each subsequent year. We discuss two illustrative economic scenarios for the fiscal years after 2017-18. Under a mild recession scenario, the state would have enough reserves to cover its operating deficits through 2020-21. This means, under our assumptions, the state could weather a mild recession without cutting spending or raising taxes. However, this conclusion assumes that the state does not make any changes to its current policies and programs in any year during the outlook. This outlook also assumes no changes in federal policy, even though the recent election results suggest some such changes are now likely. State or federal policy changes could have a significant impact on the state's bottom line.

November 18, 2015 - California's state budget is better prepared for an economic downturn than it has been at any point in decades. Under the main economic scenario in this year's LAO Fiscal Outlook, 2016-17 would end with reserves of $11.5 billion, assuming the state makes no new budget commitments through next year. If the economy continues to grow through 2019-20, annual operating surpluses and larger reserves could materialize, and there may be capacity for some new budget commitments—whether spending increases or tax reductions. An economic or stock market downturn, however, could occur during our outlook period. To illustrate this economic uncertainty, we provide projections under alternative scenarios such as a hypothetical recession that causes budget deficits to re-emerge. The more new budget commitments are made in 2016-17, the more likely it is that the state would face difficult choices—such as spending cuts and tax increases—later.

November 19, 2014 - The 20th annual edition of the LAO's Fiscal Outlook—a look at possible state revenue and spending trends over the next five years—reflects anticipated progress in building budget reserves under the recently approved Proposition 2. Specifically, absent new budget commitments, we estimate the state would end 2015-16 with $4.2 billion in total reserves, $2 billion of which would result from Proposition 2's new reserve rules. A $4 billion reserve would mark significant progress for the state, but maintaining such a reserve in 2015-16 would mean little or no new spending commitments outside of Proposition 98, the funding formula for schools and community colleges. Our higher General Fund revenue estimates translate to $6.4 billion available in 2015-16 for the state's Proposition 98 priorities. The report also discusses choices facing the state in implementing Proposition 2, such as choices about which budgetary and retirement debts to repay with dedicated Proposition 2 funds over the next 15 years.

November 20, 2013 - The 19th annual edition of the LAO's Fiscal Outlook--a forecast of California's state General Fund revenues and expenditures over the next six years--reflects continued improvement in the state's finances. A restrained budget for 2013-14, combined with our updated forecast of increased state revenues, has produced a promising budget situation for 2014-15. Our forecast indicates that, absent any changes to current laws and policies, the state would end 2014-15 with a multibillion-dollar reserve. Continued caution is needed, however, given that these surpluses are dependent on a number of assumptions that may not come to pass. For example, as we discuss in this report, an economic downturn within the next few years could quickly result in a return to operating deficits. In this report, we outline a strategic approach for allocating potential surpluses that prepares for the next economic downturn while paying for past commitments, maintaining existing programs, and making new budgetary commitments incrementally to address other public priorities.

November 14, 2012 - The 18th annual edition of the LAO's Fiscal Outlook--a forecast of the state's budget condition over the next five years--shows that California's budget situation has improved sharply. The state's economic recovery, prior budget cuts, and the additional, temporary taxes provided by Proposition 30 have combined to bring California to a promising moment: the possible end of a decade of acute state budget challenges. Our economic and budgetary forecast indicates that California's leaders face a dramatically smaller budget problem in 2013-14 compared to recent years. Furthermore, assuming steady economic growth and restraint in augmenting current program funding levels, there is a strong possibility of multibillion-dollar operating surpluses within a few years.

November 16, 2011 - We forecast that General Fund revenues and transfers in 2011-12 will be $3.7 billion below the level assumed in the June budget package. Such a shortfall could result in $2 billion of “trigger cuts” to various programs—including all of the “Tier 1” trigger cuts and three-fourths of the “Tier 2” cuts. (The Director of Finance will determine the actual amount of such cuts next month.)
In 2011-12, we project that the state will have a $3 billion deficit, including the effects of these trigger cuts. In 2012-13, the state will face higher costs due to expiration of a number of temporary budget measures, an increase in Proposition 98 school costs under current law, the repayment of its Proposition 1A property tax loan, and other factors. We project a $10 billion operating shortfall (the difference between annual revenues and expenditures) in 2012-13. The $3 billion “carry-in” deficit from 2011-12 and the projected $10 billion operating shortfall mean that the Legislature and the Governor will need to address a $13 billion budget problem between now and the time that the state adopts a 2012-13 budget plan.

November 10, 2010 - Our forecast of California’s General Fund revenues and expenditures shows that the state must address a budget problem of $25.4 billion between now and the time the Legislature enacts a 2011‑12 state budget plan. The budget problem consists of a $6 billion projected deficit for 2010‑11 and a $19 billion gap between projected revenues and spending in 2011‑12. Similar to our forecast of one year ago, we project annual budget problems of about $20 billion
each year through 2015‑16. We continue to recommend that the Legislature initiate a multiyear approach to solving
California’s recurring structural budget deficit. In 2011‑12, such an approach might involve $10 billion of permanent revenue and expenditure actions and $15 billion of temporary budget solutions. In 2012‑13, 2013‑14, and 2014‑15, another few billion of permanent actions each year could be initiated, along with other temporary budget solutions, and so on until the structural deficit was eliminated.

November 18, 2009 - Our forecast of California’s General Fund revenues and expenditures shows that the state must address a General Fund budget problem of $20.7 billion between now and the time the Legislature enacts a 2010–11 state budget plan. The budget problem consists of a $6.3 billion projected deficit for 2009–10 and a $14.4 billion gap between projected revenues and spending in 2010–11. Addressing this large shortfall will require painful choices—on top of the difficult choices the Legislature made earlier this year.

November 20, 2008 - The state’s struggling economy has severely reduced expected revenues. Combined with rising state expenses, we project that the state will need $27.8 billion in budget solutions over the 2008-09 and 2009-10 fiscal years. The state’s revenue collapse is so dramatic and the underlying economic factors are so weak that we forecast huge budget shortfalls through 2013-14 absent corrective action. From 2010-11 through 2013-14, we project annual shortfalls that are consistently in the range of $22 billion. Closing a projected $28 billion budget shortfall will be a monumental task. We believe the Legislature must take major ongoing actions by both reducing base spending and increasing revenues. If the Legislature has any hope of developing a fiscally responsible 2009–10 budget, it must begin laying the groundwork now.

November 14, 2007 - In order to balance the 2008–09 budget, the state will have to adopt nearly $10 billion in solutions. Addressing the state’s current budget problem is even more urgent because we forecast a continuing gap between revenues and expenditures. A plan to permanently address the state’s fiscal troubles must involve a substantial portion of ongoing solutions. This is not only because of the persistent operating deficits projected throughout the forecast, but also because of the downside risks inherent with the economy, General Fund revenue volatility, and a wide range of budgetary uncertainties. Making tough choices now will allow the state to move closer to putting its fiscal woes in the past.

November 15, 2006 - Following a year in which major revenue increases were allocated to education and other state programs, California policymakers will face a much tougher budget in 2007-08. According to our updated forecast, the state’s budget faces operating shortfalls in excess of $5 billion in both 2007-08 and 2008-09, which will require significant actions to eliminate.

November 16, 2005 - The state's budget outlook for 2006-07 and beyond has improved considerably as a result of a major increase in revenues and significant savings adopted in the 2005-06 budget plan. The state, however, still faces major operating deficits in the next several years.

November 17, 2004 - According to our projections, the state is facing a year-end shortfall of $6.7 billion in 2005-06. Over the longer term, absent corrective actions, the state faces persistent annual current-law operating deficits that peak at nearly $10 billion in 2006-07, before narrowing somewhat in subsequent years.